Are You in or Out?: Hong Kong and the Applicability of the United Nations Convention on Contracts for the International Sale of Goods

• Citation: Vol. 49 No. 3
• Publication year: 2021
• topic: Business of Law,Commercial Litigation,Contracts,Civil Procedure

Are You In or Out?: Hong Kong and the Applicability of the United Nations Convention on Contracts for the International Sale of Goods

Cullen Threlkeld^*

Table of Contents

I. Introduction................................................................ 680

II. Background................................................................. 681

III. Analysis..................................................................... 684

A. The Drafting of the CISG...................................................684
B. International Case Law.....................................................689

i. Chinese Jurisprudence................................................690
ii. International Jurisprudence........................................692

C. The CISG Should Apply to Hong Kong.............................694

IV. Conclusion................................................................. 696

[Page 680]

I. Introduction

Recent civil unrest in Hong Kong has brought more international attention to the state of the relationship between Hong Kong and mainland China. The degree of control that the mainland has over Hong Kong has risen in saliency over the past several years. While many of the questions surrounding the recent unrest have been concerned with the political structure between the special administrative region and the central government, the international media and scholars have given little attention to the continuation of the Hong Kong legal tradition when it comes to the framework of its international contracts. Because of the United Kingdom's colonial sovereignty over the city-state, Hong Kong inherited the Anglo-Saxon tradition of common law, which continues even after the separation of Hong Kong from the United Kingdom in 1996.¹ However, whether the mainland has changed this tradition by pushing Hong Kong into international obligations is still a question that has befuddled courts across the globe.

The United Nations Convention on Contracts for the International Sale of Goods (CISG)² was ratified by China on December 11, 1986, applying the CISG to the whole of China.³ Pursuant to the terms of Article 93 of the CISG, a contracting state must expressly file a declaration with the depositary of the United Nations if it wishes to limit the applicability of the Convention to specific territories of separate law systems.⁴ In 1997, China issued a declaration listing international agreements that would apply to Hong Kong.⁵ Yet, the CISG was not on this list, and China has not issued an express Article 93 declaration pursuant to the CISG at the time of this writing.⁶ Instead, courts have been left to interpret whether China's 1997 list qualifies as an Article 93 declaration that removes Hong Kong from the CISG's sphere of applicability by virtue of negative inference. This question has arisen time and time again as Hong Kong companies

[Page 681]

contract around the world for the trade of goods and subsequently get hauled into court when the contracts are in dispute.

In 2004, staff attorney Ulrich Schroeter, with the German consulate in Hong Kong, published an initial study addressing this question in 2004.⁷ Schroeter argues that the CISG does apply to Hong Kong by virtue of the policies of the CISG and the power of the Chinese central government over the international obligations of Hong Kong.⁸ The study conducted under this Note ultimately agrees with Schroeter, but I expound upon the growing friction that this question has created in international courts since the publication of Schroeter's study. This Note addresses the significance of the CISG's drafting history and its evolution from the Hague Conventions that preceded it. Moreover, this Note argues that the trend of international courts in the past decades has, for the most part, diverged from the purposes and intent of the CISG. Many of the reported cases discussed by this Note have interpreted China's 1997 list to constitute an Article 93 declaration, but it is the position of this Note that it does not.

II. Background

On July 1, 1997, Hong Kong receded back to China from the United Kingdom, and in this recession, the two nations set forth the guidelines for the continuation of Hong Kong's political and economic rights.⁹ In the Opium Wars of the Eighteenth Century, Britain obtained concessions of land from imperial China including and surrounding the island of Hong Kong.¹⁰ After the People's Republic of China solidified itself as the governing power on the Chinese mainland, China took up the position that many of the treaties between imperial China and western powers were invalidated by coercive bargaining, and the nation set about applying pressure to recover lost territories.¹¹ In an effort to maintain good relations and to preempt the rise of any localized instability, the governments of China and the United Kingdom reached an agreement on May 27, 1985, called the Sino-British Joint Declaration on the Question of Hong Kong, in which Hong Kong

[Page 682]

would recede back to China on July 1, 1997.¹² The international community viewed the Joint Declaration as a treaty, but China has expressed the opinion that it is purely a declaration that puts words to what is, in effect, sovereign grace, therefore leaving the binding nature of its provisions questionable.¹³

The Joint Declaration summarily appears to be a document reflecting a wish for continuance of the status quo. The Joint Declaration provides that the "laws currently in force in Hong Kong will remain basically unchanged" and "[t]he current social and economic systems in Hong Kong will remain unchanged . . . [r]ights and freedoms . . . will be ensured by law."¹⁴ The annexes to the Joint Declaration go on to elaborate what the law of Hong Kong will be, stating:

After the establishment of the Hong Kong Special Administrative Region, the laws previously in force in Hong Kong (i.e., the common law, rules of equity, ordinances, subordinate legislation and customary law) shall be maintained, save for any that contravene the Basic Law and subject to any amendment by the Hong Kong Special Administrative Region legislature.¹⁵

The Joint Declaration leaves much room for the bending of its terms and the creation of new restrictions via its qualifying language. Commentators note that the Joint Declaration is full of nebulous and imprecise language such as "[t]he Hong Kong Special Administrative Region will enjoy a high degree of autonomy" and "the laws previously in force . . . shall be maintained, save for any that contravene the Basic Law."¹⁶ Indeed, Article 3(12) leaves much of the interpretation of the agreement open to China, stating:

The above-stated basic policies of the People's Republic of China regarding Hong Kong and the elaboration of them in annex I to this Joint Declaration will be stipulated, in a Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China, by the National People's Congress of the People's Republic of China, and they will remain unchanged for 50 years.¹⁷

The National People's Congress passed the "Basic Law" referenced in the Article in 1990 and it became effective on July 1, 1997, the date that Hong Kong receded back to China.¹⁸ The Basic Law does textually give effect to the language of the Joint Declaration and provides that the Standing Committee of the national government may invalidate any Hong Kong law or ruling that contravenes the Basic Law.¹⁹ Moreover, the interpretation of the Basic Law is not solely left to an independent Hong Kong judiciary; instead, whenever a decision concerning a Basic Law provision that affects the central government is before the Hong Kong courts, they must consult with the Standing Committee.²⁰ Thus, any law or decision promulgated by the Hong Kong government and judiciary may be determined by the central government to be in contravention of the Basic Law.

Prior to the recession of Hong Kong back to China, the United Kingdom was not—and still is not—a ratifying state to the CISG.²¹ Thus, Hong Kong was never an applicable territory of the CISG during the establishment of its "laws previously in force" provision²² for the purposes of the Basic Law.²³ Article 153 of the Basic Law provides that:

The application to the Hong Kong Special Administrative Region of international agreements to which the People's Republic of China is or becomes a party shall be decided by the Central People's Government, in accordance with the circumstances and needs of the Region, and after seeking the views of the government of the Region.²⁴

Article 153 removes any doubt that, though Hong Kong retains economic capitalist freedom, international agreements on trade or uniform contract law may be imposed on Hong Kong by the central government. China was, and is, a ratifying state of the CISG.²⁵ Hence, domestically, the central government appears empowered to issue an Article 93 declaration under the CISG to reserve or expressly apply the CISG to Hong Kong. Indeed, the central government has

[Page 684]

apparently used this power to great effect.²⁶ Accordingly, courts have been left to interpret whether China's list of applicable conventions to Hong Kong qualifies as an Article 93 declaration by virtue of negative inference.

III. Analysis

The reasoning behind the drafting of the CISG, specifically Article 93, closely reflects the reality of Hong Kong's relationship with mainland China as an autonomous special administrative region. An analysis of the drafting of the CISG is useful for discussing the applicability of the CISG to Hong Kong in light of the Joint Declaration and the Basic Law. Additionally, the application of uniform international law requires analysis of how international courts have tried to find cohesion in the CISG's interpretation.

A. The Drafting of the CISG

Schroeter argues that Article 93 of the CISG is a mere injection at the request of Canada and Australia on the drafting committee.²⁷ But the history and evolution behind...